Interview with Joseph Fuda, President and CEO of Micromem Technologies (CSE: MRM, Forum)
For the uninitiated, briefly describe Micromem and the services it provides.
Micromem is a company that has a sensor-based solution. Our main objective is to provide our clients with analytical capability for infrastructure and infrastructure-type projects. We work with these companies to fulfill unmet needs where they need data acquisition in very harsh environments so they can use that information to successfully plan out and deal with their own costs.
Over the last 20 years the oil and gas industry have been faced with public pressure to ‘clean up’ their act as pipeline incidents alone had caused over $6.3 billion in property damages. How will Micromem’s sensor technology solutions help this beleaguered industry and what other key markets is Micromem assisting and how?
The oil and gas industry is a very interesting business for us. They have a lot infrastructure they have to manage and maintain. In as much that it is a global operation, you’re correct about the $6.3 billion, but you may have noticed that BP was hit with an $18.0 billion settlement for that spill in the Gulf of Mexico. So this is a very big issue for them. The challenge that oil and gas companies face is the size of their infrastructure. It requires hands-on maintenance and real personnel to be deployed to assess, check and make necessary decisions on the next steps to deal with that infrastructure. The problem with that is they generally don’t know what’s going to go wrong until it has gone wrong and it’s usually at a catastrophic cost.
The projects we are dealing with are to provide a diagnostics system for the oil well, the cement in the oil well, the pipeline infrastructure and the corrosion of that pipeline in real time. This is so they don’t have to worry about getting information post an inspection or post a problem. Instead, they’ll get that information in real time and make that decision on what maintenance will be required in the near-term without having to necessarily deploy people ad hoc or deploy people to do an assessment first. That assessment would now be carried out through sensor technology and they can make a decision from there on what the next steps will be.
What other markets besides oil and gas is Micromem focusing on?
The utility business. We’re not only providing sensor technology solutions for transformer discharge problems, but power line monitoring systems where they want to have a real time assessment of power lines; their status, what’s happening. We’ve all heard stories about power lines coming down, from such things as ice build-up. Utility companies have hundreds of thousands of miles of infrastructure to review and assess, and they obviously want to have real time data and information to keep solving potential problems before they arrive.
Describe the importance of Micromem’s recent patent announcement.
This is really the best part about how we do our deals. All of our clients are joint partners in development; we share intellectual property. They foot the bills, they share information and they give us data. In exchange for that, they get certain rights to the IP that’s been developed out of their project, because when a Chevron or a Shell or a Castrol works with us, they need to know that we have those patents to protect the product that is being delivered. When you are Chevron and you’re deploying thousands of these devices, you want to make sure that the intellectual property protection is whole.
This vested interest ensures both the longevity of contracts, because large companies are slow to change and creates a barrier to entry for the competition, because these companies will not want to damage the investment they already made in the partnered production of their sensor technology. This patenting of IP also deals with the competitors’ right of way, preventing any future confusion or litigation revolving around competing products. Therein lies the importance of our patent process.
Besides the patents, what are the major milestones Micromem has reached to date and what can investors look forward to in the next 24 months?
Let me answer that this way. Twenty-four months ago we had a core technology that we had finally proven up. Twelve months ago we had clients interested in modifying that core technology into providing a product for their needs and addressing their specific problems. Now we are beginning to build production versions of these things to be installed on our client’s sites. We have actual product sale now. So the next twelve months, that deployment will begin with three of our clients and in the next twenty-four months all five of our clients will have products that they will be using.
Micromem isn’t a ‘product’ company, explain what that means and what advantages it provides and how it sets you apart from the competition.
The big part of it for us is that the customers we have, all have a problem that current technology isn’t able to address. You can’t go off a shelf and buy a thing that will solve their issues. So that’s why they’re talking to us. What happens is that we deal with our customer on a customized basis. We bring in the required expertise, because our company is small at about ten people, so we bring in the people specific to solving our client’s problems. This way we build a solution that is specific to both that client and the challenge it needs to address. It doesn’t require us to pull off the shelf parts or existing technology to make the device work.
So we’re free to do what we need to do to be creative. This business is well saturated. But many of our competitors like Siemens, Phillips and Honeywell, design devices around sensor technology, build them and put them on the shelf. They are carrying an inventory of generalized products. So they drive their customers to buy those products with modifications, but those products were never specifically built to handle the issue their client is experiencing. We don’t do that. We have the freedom to design a tailored solution from the ground up.
Industries have finally realized that it isn’t just collecting the data, but it’s how that data is interpreted that really adds ROI and assists in the all-important decision-making process, how does Micromem help companies better utilize their sensor tech solutions?
We design the systems specifically to what our clients are wishing to find out. We don’t just go, ‘here is the system and ten data points, you figure out how you are going to make those data points work for you’. We ask what is it that you need; what data points are going to be meaningful to your decision-making and that’s what we’ll design the sensor technology to deliver to you. Information overload doesn’t help anyone. Too much information that is meaningless or so fact driven without any diagnostic or interpretive capabilities isn’t good to anybody; it’s just a gigantic information dump that somebody’s going to have to try to sift through.
Therein lies the problem, you may have a mountain of data but it means nothing without relevant data points and analytical capabilities. That’s why we work with our clients to find out what they want to get out of their sensor technology. What is it that they need? What do they expect to get from it over time and what are the diagnostic capabilities they are looking for? So along with our customized sensor technology solution, we provide a customized analytical platform as well for our clients.
Who are the key players on the executive team and Board, and what skills do they bring to the table to assist Micromem in achieving its goals?
Well, we’re a small operation. Steven Van Fleet, our Director and President, is the man behind the engineering. His history was with International Paper. He brought to bear and drove the whole development of RFID tags and Micromem is the evolution of that mindset. Then there’s myself, operating as CEO, who has kept the company funded while we went through our research and development phase. Last but not least, Dan Amadori, as CFO.
As far as the board is concerned, they are all very capable lawyers, accountants, business people and engineers and we use them all.
Innovation is a key factor to longevity in tech. How do Micromem’s partners assist in bringing leading-edge solutions to customers?
That’s the reality of it. For instance, when a company hires a lawyer, they need to find a lawyer with expertise lies in the field of work they currently require assistance with whether it be an M&A, or a legal issue, or a litigation or securities issue. You need to find a specialist in that field. With the business we’re in, we have access to all of these industry specialists, so if we need somebody who is good at magnetics or somebody that is good at analytics versus somebody who has deep experience with the oil and gas industry, we can identify that respective player with that specific expertise and bring them on for the duration of that particular project.
Is Micromem tightly held?
We have two thousand shareholders. Two hundred of those would be larger blocks, but they are all free independent thinkers. The board and the inside group might make up 50-60%, but the rest is held in the hands of other investors.
Why should investors jump on board right now?
All the risk related to the initial development of our technology was borne by the inside group. We’ve never done any outside financings. The product development risks are being shouldered by our clients who are sending cheques and we’re depositing research money from them. They believe in it enough to say, ‘Okay, count us in, we’re collecting millions from our customers’.
The next phase is where we’re bringing these products into actual production for sale which is also being borne by our customers, because our customer is the market space that we’re aiming for. We’re not working with a partner to build a solution to try to sell to somebody sight unseen. In the agreements that we negotiate, the sale of the final product is the ultimate goal, so it’s not a science experiment.
In so much that the fundamental technology risk was undertaken by the insiders, the fundamental development risk was undertaken by our customers and the deployment is also undertaken by our customers.
In short, the technology risk is behind us and going forward, we only have to deal with marketing and sales serving customers who are some of the biggest players in their respective fields.
What challenges does Micromem face in achieving its goals?
We are limited by our size. We have eight projects that occupy our entire day. As we bring on new customers, we can only bring on those customers as the other deployments begin. So we need to grow the business out to as far as our own internal deployment of engineering people and lab space. We would need logistics partners, people that will help us find the manufacturers; do the sourcing of the materials and so on. Right now, we outsource all of that, which has worked well to this point as it has spread the risk; we don’t have large overheads, huge staff or expansive office space, but that process needs to change now and we need to bring it in-house.
Where do you see Micromem in the next 24 months?
I can tell you that we’ve already been approached by the two largest computer technology companies who have expressed interest in participating with Micromem Technologies in some format going forward. That process has been on-going. We’ve been approached, due diligence is underway and they’ve asked us to supply work and potential benefits to their own respective clients where they have failed to meet the hardware side of it. We already announced that the process had begun with two big multinational companies, that’s already out there, but we’ve haven’t mentioned the names yet due to confidentiality.
Let’s put it this way, we’re already three months into the due diligence process and for what it’s worth, big companies like these don’t stick around if they don’t see something of value, because generally if they are not interested, you’ll get a ‘thanks, but no thanks’, within the first week. So in the next 12 months, I would see us having a controlling interest being acquired by a respective big player or the whole company being acquired by a respective big player.
FULL DISCLOSURE: Micromem Technologies is a Stockhouse Publishing client.